Hope for self-employed and retired borrowers as two lenders launch new 'complex' mortgages

If you're self-employed or retired and have tried to get a mortgage in the past couple of years, you will know just how many obstacles lenders can put in your way.

But the tides could be turning for these borrowers as both Paragon Mortgages and The Mortgage Lender have this month unveiled a new range of 'complex' mortgages.

These are deals specifically designed to help the self-employed, retired or about to retire and anyone with multiple or variable sources of income get approved for a home loan.

If you need a mortgage after you retire, you might find high street lenders turning you away

Paragon, which until this year has focused solely on lending buy-to-let mortgages, has always catered for borrowers with complicated sources of income.

Its launch into residential loans this month has therefore been well-received by brokers, who are hopeful its complex mortgages could help plug a big finance gap for borrowers who don't fit the normal employment mould.

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Customers in so-called 'specialist segments', including the self-employed and those borrowing into retirement, are often considered too complicated by mainstream lenders and face limited product choice as a result.

Paragon gets around this by using its team of experienced underwriters to work closely with mortgage advisers to look at every application on an individual basis.

John Heron, managing director at Paragon Mortgages, said: 'Customers with complex incomes looking for a residential mortgage deserve access to a wider choice of mortgage products.

'From our experience in the buy-to-let market, we know that customers with multiple sources of income are often among the most credit-worthy and we see an opportunity to leverage this experience and bring new choice and competition to the owner-occupied market.'

The mortgages are provided by Paragon’s banking subsidiary, Paragon Bank, and include two-year and five-year fixed rate mortgages available at 75 per cent and 85 per cent loan-to-value.

Interest rates start from 3.29 per cent for two-year products and 3.49 per cent for five-year products.

Challenger banks want to support borrowers

The Mortgage Lender, meanwhile, is one of a string of challenger lenders that have launched in the past few years.

Its new range of loans are designed specifically for borrowers who have complex finances, including income generated by anything from rents to contract work and the self-employed.

It will also lend to those with less than perfect credit histories who have demonstrated that their finances are back on track to recovery.

TML's two-year fixed rates are available on loans up to 85 per cent loan-to-value, with rates starting from 3.41 per cent.

Pete Thomson, from TML, said: 'Lots of homeowners have seen their situation change while they’ve been on their existing deal.

'Now, because they’ve become self-employed, taken on a second job, are paying school fees or maybe have some credit issues, they think they’ve got little choice but to just sit on their current lender’s expensive standard variable rate.

'That doesn’t have to be the case and they could save thousands of pounds in just two years, which they could be putting to other uses.'

Why are high street lenders reluctant to offer complex mortgages?

When the financial crisis hit back in 2007 and 2008, many international banks lost billions from investing in complicated financial products, backed by sub-prime mortgages that weren't repaid.

Financial regulators around the world reacted by tightening the rules around who lenders could give mortgages to, and on what terms.

In 2014, after years of negotiation, the final mortgage rules for the UK were brought in.

One of the effects of these rules is that borrowers must now be able to prove their income is what they claim it is, while lenders have to be able to demonstrate they have seen evidence that the borrower can afford to repay the mortgage.

This is pretty straightforward for a borrower with a full-time job and a monthly salary.

It's quite a lot more complicated for someone who freelances as a consultant, earns three salaries as a non-executive director and relies on investment income that might go up or down with the stock market, for example.

While big banks process thousands of mortgage applications using technology, smaller specialist lenders have the time to look at the finances of potential borrowers in detail and then make a judgement on whether they can afford the mortgage.

Many homeowners who took mortgages before these rules were brought in are now stuck with their existing lender because they no longer 'fit' the template income that lenders are looking for today.

Are other lenders offering self-employed mortgages?

Yes - there are actually quite a few small lenders that specialise in mortgages for borrowers who don't fit the norm: Kensington Mortgages, Precise Mortgages, Aldermore, TSB, Virgin Money, Bluestone, OneSavings Bank and many of the small building societies have done this type of lending for a while.

Nearly all of these lenders deal only through mortgage brokers though, so if you're looking for a loan like this, it's worth speaking to an adviser.

Andrew Montlake, of London-based mortgage broker Coreco, said: 'There has been a vast improvement over the past year or so in lenders looking at offering solutions for the self-employed, with some now able to lend to those with only one year’s accounts providing they have prior experience in their industry.'

For example TSB has a 1.24 per cent tracker for two years at 75 per cent LTV with a £995 fee or a 1.34 per cent deal fixed for two years with a £995 fee.

Nationwide, Halifax and Virgin Money also have competitive products for the self-employed.

Montlake added: 'Halifax particularly excels at lending where applicants are contractors if they earn more than £75,000 a year.'

Most lenders that offer mortgages to borrowers with more complex incomes operate through mortgage advisers

What about getting a mortgage after I retire?

For older borrowers looking for a loan, the good news is that this area has also very recently opened up significantly. Led by many of smaller building societies, there are now a number of lenders offering good products to older borrowers who are struggling to find a loan on the high street.

Lenders such as Family Building Society will lend well beyond the age where many other lenders cut off as long as borrowers can prove their income.

'Hybrid' mortgages are also emerging, where the loan starts off as an interest-only mortgage with monthly repayments but can be 'switched' into an equity release lifetime mortgage, where interest payments roll up into the loan, part way through the term.

'There are some more innovative products around like those from Hodge Lifetime which offer older borrowing solutions for those aged between 55 and 85,' said Montlake.

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